Finimize - 🤓 Goldman’s recession manual

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👴🏼 One day you’ll be telling your grandkids stories about these crazy times – in your 10-bed mansion, of course. Well, that’s if you join BlackRock’s Henry MacLeod and Penfold’s Chris Eastwood for Managing Your Pension In A Cost-Of-Living Crisis on Wednesday, where you’ll find out how to set yourself up for your later years. Grab your ticket

Today's big stories

Chipmaker Micron doesn’t have high hopes for the future
Goldman Sachs has published a manual on previous recessions, and it could tell you a lot about where this one goes next – Read Now
Copper dropped to its lowest price since early last year

Supply And… Supply

What’s Going On Here?

Micron revealed a disappointing outlook for this quarter late last week.

What Does This Mean?

Micron – the biggest maker of memory chips in the US – saw its revenue climb 16% last quarter from the same time last year to an all-time high. But that was its most modest uptick in over a year, and the company – which admitted that demand was tailing off fast – gave a far worse-than-expected revenue outlook too. Shoppers, after all, are cutting down on the big-ticket technology that houses Micron’s semiconductors, leading the makers of the devices to scale back on their own orders.

So Micron is doing what every self-sacrificing young professional is doing in these overpriced times: it’s planning to cut spending on new plants. That way, it can slow down manufacturing and burn through existing stockpiles. The company even said it would start walking away from orders where the customer exploits the oversupply to negotiate big price cuts, which it hopes will minimize any impact on its profit.

Why Should I Care?

The bigger picture: South Korea is a warning.
You can see this situation playing out more widely too: data out last week showed that stockpiles of chips in South Korea – the world's biggest producer of memory chips – was 53% higher in May than the year before. The last time inventory grew this fast was in March 2018, and it preceded a drop-off in revenue growth across the entire industry.

Zooming in: Boom or bust?
These are all the hallmarks of an industry slipping into a boom-and-bust cycle, where producers overproduce in the good times only to be left with a glut when demand drops off. But at least memory chips are essential to just about everything these days, which means that a chipmaking boom-and-bust should be far less severe than it would’ve been in the past. Micron certainly thinks so: it said it’s expecting a rebound in orders in the next year or so.

You might also like: The tools you need to value Micron’s stock.

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Analyst Take

What Goldman’s Recession Manual Is Telling Us About This Recession

Stéphane Renevier, Analyst

Goldman Sachs is famous for its recession manual: a how-to handbook on past recessions and what brought them about.

And now, with almost every economist predicting that the US is headed for a slowdown, it’s the perfect time to pick up the manual and dig into the three metrics it focuses on.

It shows, for example, that share prices have fallen less and for a shorter period of time than during the usual recession-era bear market.

So if stocks experience a loss of 50% like they have done in the past, they’ll fall another 37% from where they are now…

So that’s today’s Insight: what Goldman’s recession manual can tell you about what’s next.

Read or listen to the Insight here

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